Ethanol Gains Against Gas on Lower Supply, Higher Demand

Feb. 25 (Bloomberg) -- Ethanol gained against gasoline on speculation that lower imports and higher demand will drain stockpiles of the fuel alternative.

The spread narrowed 2.65 cents to 69.01 cents a gallon. Imports were down 83 percent to 21,000 barrels a day in the week ended Feb. 15 from the 2012 high in October, according to the Energy Information Administration, while inventories are lower than year-ago levels.

"Relative to the discount to gasoline, there’s no reason blenders shouldn’t be using as much as they possibly can," said Terry Reilly, senior commodity analyst at Futures International LLC in Chicago. "We’re importing less. That’s another reason we should see a drawdown in stocks."

Denatured ethanol for March delivery rose 0.8 cent, or 0.3 percent, to settle at $2.371 a gallon on the Chicago Board of Trade. Futures have advanced 8.3 percent this year.

Gasoline for March delivery decreased 1.85 cents, or 0.6 percent, to $3.0611 a gallon on the New York Mercantile Exchange. The contract covers reformulated gasoline, which is made to be blended with ethanol before delivery to filling stations.

Reilly said better returns have given companies an incentive to raise ethanol production.

Production Up

Output rose a third consecutive week in the period ended Feb. 15, the Energy Department’s statistical arm said in a Feb. 21 report. Production is down 17 percent from the record 963,000 barrels a day in December 2011 as companies slashed operations because of higher corn prices caused by the worst drought since the 1930s.

Corn for March delivery advanced 3.25 cents, or 0.5 percent, to $6.935 a bushel in Chicago. One bushel makes at least 2.75 gallons of ethanol.

The corn crush spread, representing gains or losses from turning a bushel of corn into ethanol, was minus 15 cents, unchanged from Feb. 22. The amount doesn’t include revenue from the sale of dried distillers’ grains, a byproduct of ethanol production, which can be fed to livestock.

Joseph Glauber, the Agriculture Department’s chief economist, said Feb. 21 that corn to be used for ethanol in the 2013-2014 growing season will be below 5 billion bushels for a second year.

RINs Reserves

U.S. oil refiners may draw from a reserve of Renewable Identification Numbers that they’ve banked in previous years to help meet federal requirements, Bloomberg New Energy Finance said in a report today. RINs help the government track whether refiners are meeting biofuel mandates.

Advanced RINs, which include biodiesel and sugarcane-based Brazilian grade ethanol, were unchanged at 59.5 cents, the highest price this year.

Ethanol-blended gasoline made up about 90 percent of the total gasoline pool, up from 89 percent the previous week, EIA said.

Higher domestic consumption will be needed to help lift prices and fill a void that may be created from lower export demand after the European Union this month imposed a five-year tariff on U.S. supply to curb competition for German, British and EU makers of the fuel, Reilly said.

Ethanol Exports

Exports of the fuel in November, the most recent month for which data is available, totaled 965,000 barrels, the smallest amount since November 2010, EIA data show.

Spot prices in Sao Paulo were $2.43 a gallon last week, the highest since April 13 and about 2.5 percent more expensive than today’s futures price.

In cash market trading, ethanol was unchanged in New York at $2.48 a gallon, in Chicago at $2.37 and in the U.S. Gulf at $2.42, data compiled by Bloomberg show. On the West Coast, the most expensive hub in the nation, prices gained 1 cent to $2.53 a gallon.

Chicago’s discount to New York was unchanged at 11 cents, wider than the 8.6-cent average of the past year. The West Coast’s premium to the Gulf expanded to 11 cents from 10. It’s averaged 9.8 cents since Feb. 27, 2012.

--Editors: Charlotte Porter, Richard Stubbe

To contact the reporter on this story: Mario Parker in Chicago at mparker22@bloomberg.net